MGM Resorts International — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. MGM Resorts owns and operates casino resorts in the U.S. and Macau, and reports Las Vegas Strip Resorts, Regional Operations, and MGM China. All financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $2.253 billion | $3.177 billion |
| Operating income | $1.251 billion | $370 million |
| Net income | $675 million | $66 million |
| Net income attributable to MGM Resorts | $807 million | $31 million |
| Diluted EPS | $1.64 | $0.05 |
| Adjusted EBITDAR | $295 million | $748 million |
| Operating cash flow | $(423) million | $400 million |
Operating income and earnings were boosted by a $1.492 billion net gain on the MGM Grand Las Vegas and Mandalay Bay real estate transaction; operating income also included $55 million of property transaction costs and $44 million of CEO transition expense. Adjusted EBITDAR, a non-GAAP measure, fell about 61%. Las Vegas Strip Adjusted Property EBITDAR was $268 million, Regional Operations was $152 million, and MGM China recorded a $22 million loss.
Cash and cash equivalents were $6.016 billion at quarter-end, versus $2.330 billion at December 31, 2019. Long-term debt, net, was $11.743 billion; principal debt was approximately $11.8 billion. Operating lease liabilities totaled $8.408 billion. The company reported $7.598 billion of current assets and $2.626 billion of current liabilities. Investing cash flow was positive $2.363 billion, largely reflecting $2.456 billion of proceeds from the real estate transaction; financing cash flow was positive $1.745 billion.
Material changes and transaction effects
- Revenue declined 29% year over year: MGM China revenue fell 63%, Las Vegas Strip Resorts 21%, and Regional Operations 10%. Domestic property closures began March 17; Macau operations were suspended for 15 days in February and then reopened under restrictions.
- The real estate transaction contributed $2.5 billion in cash proceeds, $1.3 billion of debt assumed by the venture, and a 50.1% equity interest in the venture. MGM recorded a net gain of $1.492 billion. MGM also became subject to a new lease for Mandalay Bay and MGM Grand Las Vegas, with initial annual rent of $292 million.
- Operating cash flow swung to a $423 million use from $400 million provided in the prior-year quarter, reflecting pandemic-related disruption, weaker operating results, and working-capital movements.
- In March, MGM repurchased about 11 million shares for $354 million. The Board subsequently reduced the quarterly dividend to $0.0025 per share, or $0.01 annualized.
Outlook, liquidity, and risks
- Management said all domestic properties were closed and effectively generating no revenue as of the filing. It expected Q2 2020 to be more significantly affected than Q1 and could not predict reopening dates, recovery timing, or when demand and pricing might return to pre-pandemic levels. Room and convention cancellations were high through Q3 2020, with some tentative rebookings later in 2020 and in 2021.
- While domestic properties remained closed, management estimated cash outflows of approximately $270 million per month, including net rent, interest, corporate and operating expenses, and expected capital expenditures. Macau properties were incurring approximately $1.5 million per day in cash operating expenses, excluding certain costs, significantly exceeding amounts earned there.
- In April, MGM amended its credit facility to waive financial maintenance covenants during a relief period extending into 2021, subject to conditions including a $600 million minimum monthly liquidity test, collateral pledges, and restrictions on debt, investments, and distributions. MGM China also received covenant waivers through Q2 2021. These are subsequent-period actions, not quarter-end terms.
- MGM commenced an offering of $750 million of 6.75% notes due 2025, scheduled to close May 4, 2020, subject to conditions. The filing does not provide formal earnings guidance.
- Management described aggressive cost reductions, including cuts or deferrals of at least 50% of planned 2020 domestic capital expenditures, employee furloughs and headcount reductions, and other expense controls. It warned that reduced staffing and cost actions could affect guest loyalty and its ability to attract or retain employees.
- The October 1 shooting settlement was subject to conditions and claimant participation. MGM accrued a $735 million liability and an equal insurance receivable; expected settlement funding was $735 million to $800 million, against $751 million of available insurance coverage.
- COVID-19, travel restrictions, weak consumer demand, substantial debt and fixed rent obligations, access to capital, Macau operating restrictions, and potential future impairments were identified as material risks. No quantitative goodwill or indefinite-lived intangible impairment review was triggered at March 31, 2020, but management cautioned that prolonged closures or a slow recovery could change that assessment.
Important facts for investors to verify
- Reopening dates, operating restrictions, and the pace of demand recovery in domestic markets and Macau.
- Actual cash burn, liquidity available under amended facilities, covenant compliance, and the completion and use of proceeds from the planned notes offering.
- The durability of cash flows after accounting for debt service, rent, and lease obligations; Adjusted EBITDAR excludes significant rent and other cash uses.
- Final participation, insurance funding, and any exposure beyond the $735 million accrued for the October 1 settlement.
- Whether the transaction-related gain and other unusual items obscure underlying operating performance; MGM’s reported attributable net income differs from consolidated net income because of noncontrolling-interest accounting.